Macro

Gold is recovering today and is actually green on my screen. Wow! How unusual! Let's see if we can rally today and crawl back above 1800 before we call it a week. There's been some very interesting "news" rolling around for the last 24 hours and I wanted to take a minute to give you my non-educated opinion.

Between these comments and the wikileaks cables, one can quickly conclude that the Chinese are considering (if not already actively engaging in) further "diversification" of their vast U.S. treasury holdings. In the article above, Mr. Pritchard makes this sound as if there will be some happy and pleasant side effects of these moves. "Don't worry", he seems to say, "those dollars will flow into hard assets like stocks, land and gold". As if it's a zero-sum, no-big-deal event. On this point, he is dreadfully wrong.

As you know, I have long maintained that the real purpose of Quantitative Easing is not to promote economic growth. It is to promote low interest rates. Remember how rates on U.S. treausries are set...through auctions. Simply stated, if you need to borrow $50B and there are no takers at 2%, then you have to try 3%. If no one wants your bonds at 3%, then maybe they'll take them at 4%. Low or no demand means higher interest rates. Period.

With U.S. borrowing needs at all-time high levels, the rest of the world must be induced to buy treasuries. But, rates cannot be allowed to rise. As Mark Steyn points out in his new book, if long-term rates were to return to 5.7% (the average for the period 1990-2010), debt service projections for 2015 would increase from $290B to $850B! Additionally, the only "way out" of our current fiscal disaster is to magically increase tax revenues through economic growth. A return to higher rates would stifle and crush any potential "recovery".

So, what's a Boy Wonder to do? The answer: MORE QE MORE QE MORE QE.

The U.S. has managed to cover its necessary funding needs since June by managing the headlines. Have you noticed that nearly every time a treasury auction arises or the POSX moves down toward critical support, some type of intervention takes place. Whether it's a foreign central bank devaluing their currency or a rash of suddenly scary headlines out of Europe, events seem perfectly timed to keep money flowing into treasuries. This can work in the short-term and it obviously has. The yield on the 10-year note has actually declined since the end of QE2 in June. This won't and can't continue. A recent study from the University of Wisconsin showed that, by 2020, U.S. funding needs will soak up nearly 20% of the total annual global GDP! Do you really think that that is possible? There can be no world GDP when world economic growth is crushed under that type of debt burden.

But, that's in the future. What about the near term? Eventually, rates will rise when buyers (like China) disappear. Faced with an immediate funding crisis, QE will resume with vigor. Left with no other government funding option, the Federal Reserve will be forced into creating trillions of new greenback, simply to keep the social security checks flowing, the doctors paid and the military shooting. The dollar will resume its long-term decline into obscurity.

In the end, all of the central bank intervention in the world will not be able to suppress the global demand for true safe haven financial protection. Gold will rise to heights that even you, my dear reader, may currently think are unattainable. Silver will most certainly come along for the ride. Therefore, do not be fearful. If you use the time left to prepare...mentally, financially and spiritually...you will survive, and even prosper, in the days ahead.

Here are your updated charts. Unfortunately, both have taken on the appearance of range-bound markets. This can be managed as it affords us the clear opportunity to buy at the bottom of the range and sell at the top but it certainly isn't as much fun as runaway efforts to the upside. For today, don't get too excited until/unless either metal is able to firmly trade through the blue trendlines I've drawn inside the ranges.

I'm going to be away and unavailable for most of the day today so, just as John said to Yoko, "looks like you're on your Ono". I will be monitoring things from afar, however, and will attempt to update if conditions warrant. Have a great day and a relaxing weekend! TF

Looks like SocGen pulled a TGIF today and in response to its Corporate Market Alert, in which it asked the rhetorical question, "Fed QE '2.5': gold and equities to take off again?" it answers itself quickly and to the point in just 6 simple charts. Here they are...

Like a deer in the headlights I FROZE stiff as a board! Well as stiff as you can be while sitting on a couch looking at your computer while listening to your kids fighting in the background and not understanding what the heck happened cuz you just turned on the computer and people were jumping out windows and I am watching a stock ticker drop each second and I cannot remember how to buy or sell and I am silently telling myself "don't freak" while IAM FREAKING and saying "what would Vet do?"- maybe I will get a bracelet- and then thinking maybe I should get into a yoga position to calm down AND I DON'T DO YOGA! and then thinking "do I buy a put? crap, I don't know how buying puts works! and then CRAP, I don't even know if I have been assigned! and CRAP "I don't even know how to tell if I am assigned" and DOUBLE CRAP, "maybe I should call Optionshouse, then nope, they will laugh at me", then "why the hell not, I will call them anyway!" and then I sit on the phone for 3 minutes listening to music and advertising and 'you are #4 on the list to be answered' but then I figure by the time they get to me, the stock will be .02 so I hang up. I look around... still no Vet to save me

So I start the deep breathing exercise... breathe in count of 4 (stop to yell at my son that "no, I cannot make you a peanut butter sandwich!", breathe out. I MUST make a decision! so I finally figure ok Vet said buy back the put so I press the "bid" button while single handedly trying to work the calculator to see how much I am going to lose and can't work the damn calculator so I say "screw that!" and buy the puts - ALL TWO OF THEM!!!

Now you should know why newbies should NEVER EVER EVER NEVER TRADE EVER!!!!!!

Exerting power over people in a direct fashion is horribly inefficient, and a waste of resources (not that government fails to excel at that). The state is only so big -- though it certainly SEEMS much bigger at times.

No, it's far more effective to allow the people to attack each other -- to ostracize each other, more accurately -- in an attempt to divide us. Divide and conquer is a real tactic that TPTB use to control us. It does this through the myriad labels we're encouraged to adopt and apply to others. Think for a moment how much progress has been made in the "left vs. right" yelling match over the decades that it has raged... How much?

Nothing. Nothing of substance has come of any of it.

People continue to talk past each other over minutia while larger and more important issues are completely ignored. The state enlarges its power over us through the use of this tendency we have. This is why the "white/black" race-bating occurs... it's why the "rich/poor" wealth-bashing occurs... it's why the "left/right" political party nonsense occurs.

It's astonishingly effective... and it's how you keep the slaves (us) in line. Uniting is the last thing they want... thus the attempts to divide at every turn.

I wonder if this "big shock" will be "inflationary" (wow, there's a surprise... the Fed causing inflation) and they are just continuing to beat down commodities in anticipation so they can rise from lower levels? That is my (un)educated guess...

3 weeks ago, the car I had paid off in May, took it's last breath, it just isn't worth fixing anymore. I now walk 2.7 miles each morning and night to take the 2 hr bus ride to work. (my state has nooo decent transportation system). I'm definitely tired but I refuse to go into debt for a car. No one can understand it at work, they think I'm crazy.

Finally today I found a great used Lexus 300ES that I am going to try and get a good deal on tomorrow. The amazing thing is that I HAVE the power to force a good deal because I have money that the car dealer wants. I don't have to worry about financing anything and because the economy in my state is sooo bad, I believe the deal will be rather easy to make. The car isn't new, but it's in perfect condition plus the autocheck report is clean.

The reason that I post this is that my pre-turd world would have been to go out and finance a new or close to new car, and my life would then be filled with more debt and worry. My post-turd world rejects debt because it would reduce any amount I have to put toward PM's. Each morning and night that I take that loooong walk to take the bus, I just think of the 1 more piece of silver I can buy or that little bit of gold I want to stack. and my son's response to this mini hardship...... hang in their mom we'll appreciate it later!

To all the turdites who share their knowledge, I can only say Thank you. You may never know all the lives you have influenced. It may be a little difficult now, but I know I will be better off in the future because of all of you!

Ripped from the comments section of the Fofoa website that went quite some way to explaining what the latest move between The US and Europe is all about.

Here is the big problem. Each of these sub-systems has its own currency which its CB can print at will... flexibility! But with the dollar being the global reserve currency, there are lots and lots of dollar-denominated assets held by financial institutions in many non-$ sub-systems. So when there is turmoil in the dollar-denominated markets, the non-dollar sub-systems run into a clearing problem because they can't print dollars to help banks that owe other banks more dollars than they have. So they turn to the BIS, who also can't print dollars. Only the Fed can. So the Fed ends up being the de facto CB to the world. But it is not the clearing house for the world, and it does not take assets onto its books from those foreign banks that got into trouble. Instead, it lends directly to the other CB's which print some of their own new currency and send it to the Fed in exchange. This is why it is called a "swap" instead of Quantitative Easing. They are swapping freshly printed currencies instead of assets for currencies. All base money! The same as cash. TWICE as potentially inflationary as QE on a global scale because two sides are now exposed to currency risk.
13) When the Fed makes these international currency swaps, it doesn't send pallets of hundred dollar bills on a plane. It simply makes a contract with the foreign CB and a book entry. The contract is a two-way promise to later provide pallets of physical cash if anything goes wrong and cash is needed. And with this promise in hand, the foreign CB makes a similar contract (promise) with the European bank that got in trouble. The foreign CB promises to later provide physical cash if necessary (if something goes wrong), and the bank submits assets to the CB as collateral. Next the troubled bank passes those dollar promises (IOUs) on to the bank it owes the dollars to and that bank credits its customer's account with dollars it doesn't have, but now has indirect access to (if needed)...
14) Base money is either physical cash or a liability (IOU) that traces directly back to the Fed, which includes reserves held at the Fed. In other words, it is physical cash, or the promise of physical cash from he who can print physical cash. The Fed is willing to issue these promises willy nilly but hopes it doesn't actually end up having to do the printing.
15) The USDX is a measure of dollar exchanges with other currencies that happen on the open market. The Fed can counteract a rise in open market dollar demand by providing a supply of dollars directly to banks within its own sub-system, or indirectly to foreign banks through swaps with other CB's...
16) So as long as there is more demand for dollars than supply, the Fed can control the price of the dollar on the USDX by its own willingness to lend dollars at zero interest with toxic assets or foreign currency as collateral. This costs the Fed nothing, except currency risk and bad PR at blogs like mine. But where the Fed loses control is when there is more supply than demand. And that is what is coming because of this very inflationary policy of providing dollars to save the system at any cost..."
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and yeah, our money is credit:

"PS. This is the big secret that George F. Baker didn't want to tell Congress in 1913. That most all of what we think is money is really just promises issued by banks to supposedly credit-worthy entities giving them the right to withdraw value from a small reserve of actual money, but at the same time praying to God that they don't! It's like saying, "here you go, it's all your's, whenever you want it come and get it" with their fingers crossed behind their backs hoping you won't ever actually "come and get it".

the "Sheeple" conversation is interesting. this is our take on it, and for a piece of fun the quiz is proving remarkably good at pronouncing sheepleness levels

Sheeple are defined by characteristics, not individual beliefs

It is of course entirely possible to be misinformed on specific issues, or maybe even to have better information on the subject, and hence disagree with any number of the crackpot theories doing the rounds, without being Sheeple. Hence any test that demands that you see eye to eye with the quiz writer on every issue is by definition, invalid because there are Sheeple on both sides of the conspiracy theory fence .

The characteristics exhibited by genuine Sheeple, however are always the same.

Belief without questioning.

Inherent trust of “authority” in general.

Unwillingness to listen to arguments that oppose their views.

Not caring about the bigger picture as long as they are OK.

These traits are all there in a greater or lesser extent depending on the individual.

Please enjoy your weekend folks. Didn't have the chance to say so yesterday as I had an afternoon meeting to attend and missed the close, looks good to me. Great evening thread with a lot of great comments.

wow. "pay our fair share." shame on you. i was a fOOl and voted for you once. never again. you and your pals turbo tax tiMMy and The Bernank steal from us daily. we pay for that november 08 mistake everyday.

the last few days i have had to answer more email/text/vm than i care to admit about the sky faLLing out of the metals. friday could not have come sOOn enough. sadly, even though people have doubled or tripled in paper value i stiLL get smartaZZ this is it shEEt. and those i tried to warn, but did not take my advice are even worse.....maybe i am just tOO sensitive? reading you guys here and going to the coin shop this wEEk was just about the only thing that chEEred me up.

so anyhow, had a few bEErs last night with a friend who actuaLLy said thank you. insisted she buy me a few rounds and explained to me that she slEEps beTTer knowing what she does, and where it is buried in the ground. 4 me that is what it is about. knowing the ones you love are protected.

constitution day is the day for dr. paul to get fed. lets do our part and take this country back!

Europe Rules Out Stimulus, Shuns Geithner Plea

European finance ministers ruled out efforts to spur the faltering economy and showed no signs of taking up a proposal by U.S. Treasury Secretary Timothy Geithner to increase the firepower of the debt crisis rescue fund.

Inviting Geithner to a euro meeting for the first time, the European finance chiefs said the 18-month debt crisis leaves no room for tax cuts or extra spending to spur an economy on the brink of stagnation.

“We have slightly different views from time to time with our U.S. colleagues when it comes to fiscal-stimulus packages,”Luxembourg Prime Minister Jean-Claude Juncker told reporters after chairing the meeting yesterday in Wroclaw, Poland. “We don’t see any room for maneuver in the euro area which could allow us to launch new fiscal stimulus packages. That will not be possible.”...

Precisely because I don't know how to determine its fundamental value and have never been able to identify anyone else who can, I haven't written about gold for years.

So, he admits he knows nothing about gold, has never talked to one person who can accurately tell you what the price of gold should be, even though there are many that have opinions and methodolgies, cf. Santa, Rickards, etc., and yet he wants us to take him seriously because he can't plug some numbers into his MBA-memorized formulas and come up with an answer?

One word. Jackass.

He can make that same argument about the value of the dollar or the euro, but b/c the bonds have a yield he can calculate if they are expensive relative to each other. But, somehow he won't/can't do that for gold? What about copper or any other commodity that doesn't have a valuation model?

Seriously, if he was any kind of serious student of the markets he would have been studying this relationship for years and come up with some form of half-assed valuation. It's not rocket science for chrissakes. Even if you hate gold and refuse to consider it as money an intellectually honest person would do the following:

1) consider gold a currency

2) decide on it's potential role internally and/or internationally

3) create a valuation model using the national reserves and comparing it to either your monetary stat of choice (AMB, M1, M2, MZM, Austrian TMS, etc.) or to the foreign-exchange reserves of that currency outstanding.

4) Weight other factors based on your experience and knowledge.

5) pick a price 20%

Wow. That would have taken him less time than it took him to write the article in the first friggin' place!

This is yet another moronic article written by another jackass trapped in The Matrix and designed to keep you there as well. Buy miners cautiously.... beware it's high risk, they're cheap but dangerous. The end result of the article? People will still buy bonds, they have yield you can measure.

It pains me to know that guys like this get paid good money to write drivel like this.

Is one of the clearest and best explained description of the fraud of fiat money, CBs and currency swaps that I have read. EVERYONE should read, re-read and digest it... It's QE on steroids and hardly even gets a mention in the MSM or anywhere else for that matter...

One additional point; While each CB can only print its own currency and then swap it, there are many entities, mainly banks and trading houses who can print paper gold; and they do! They also "lease" gold for currency, but still count it as existing in their reserves thereby doubling the apparent supply.

All that they have to do is to try to avoid being called to account and be forced to deliver on their fake promises but in this, they have the assistance of the LBMA and COMEX who allow them to hide that newly printed paper gold amongst the blizzard of paper gold that the LBMA and COMEX trade every day...

I like to replace "duality" and "illusion" with words like "lies" and "bullshit". You'll find that almost everything (there are some things that do not - and pay attention to them when you see them) in this world comes in pairs. Positive and negative charges. Good and evil. Bull and bear. You'll also find that the two polarities are always chasing each other, always oscillating, always trying to seek balance. Seeking it, but never finding it.

The moment anything does find permanent balance, it leaves this realm, sometimes violently.

It's a thought that most people don't really like to deal with - that maybe the whole basis of this reality is a lie. I like to think of it as a joke that at some point got taken way too seriously. So we all live in the Kingdom of Bullshit. Makes me wonder who the Bullshit King is and where he lives...

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